Letscomprar Food Imports based on LetsBuyIt Model

Page 1 of 8 “LETSCOMPRAR” Project Proposal Introduction This project offers a new, easy and cost-effective way to import new food products from Latin America into the UK. The proposed internet application is based on a previous Internet technology model called LETSBUYIT.COM. Therefore the project scope includes significant analysis on the well publicised www.letsbuyit.com dotcom model of the 1990s to provide insight into the difficulties of putting the theory into practice. The failure of the innovative www.letsbuyit.com model provides a starting block on which to model a new internet service. This new model will support the importing of new food products from Spain and Latin America via an intelligent collective purchasing system. The first required adaptation to the food product market is by focus on one excellent and proven way to import specialised food products: hampers (a basket of products) e.g. http://www.spanishhampers.co.uk/aboutus.html Hampers or baskets can be made up of a variety of different products from a number of different countries. In addition to promoting sales directly via email to Latin American cultural groups in the UK and English-speaking Spanish learners, a regular internet monthly competition could be used to attract order from the general public. Since products would be imported and the individual hampers assembled in the UK, there would exist many cultural and culinary opportunities to involve potential customers in the decision making process on hamper content variety and range. Explanation of the previous technology model and the required adaptations The basic concept behind the www.letsbuyit.com dotcom was to collect the promises of many people to buy one particular item (a specific electronic item such as a widescreen television) and then to negotiate a good price with the manufacturer because of the bargaining power that buying in bulk provides the company (the intermediary website). The concept did not succeed and the research below provides some clues as to why not. Basically the concept did not work well in the electronics market because competition is too high from UK online electronic discount sellers with no retail shop trading overheads and which operate only from low-cost warehouses. Both HongKong based eBay electronic sellers and these UK based online electronic retailers grew rapidly over the period. Their massive sales turnover gave them an excellent bulk discount bargaining power which was more price competitive than the intelligent collective purchasing system modelled by www.letsbuyit.com could compete against. However it is proposed that fundamentals of this concept (an intelligent collective purchasing system) could succeed with specialised foreign food products. The advantage of food products is that they do not change quickly so there is more time to collect the promises of interested people. There also exists a large price difference between specialised food products in the countries of origin and the potential UK selling price but with an only small sales turnover potential. Limited turnover potential is unlikely to the attract bulk discounting warehouse-only operations into the online market-place that ruined www.letsbuyit.com. Furthermore the potential customer demand for such specialised food products, unlike electronics, revolves c29a6e53-c84f-4d8f-ab10039edf0e176a.doc Page 2 of 8 around multiple UK communities with existing collective identities that will be receptive to micro-marketing campaigns. “Letscomprar” would therefore be easier to promote by careful market targeting. Potential buyers for specialised food products, tend to belong to community or language groups whom would probably co-operate to share email and other contact methods to send these promotions to. The concept works by asking potential customers to register on the website a price at which they would be prepared to buy certain products. It would probably be best to therefore market baskets or hampers with a range of products. Only once enough people e.g. 1,000 have registered an interest/promise to buy the basket of products at a specific price e.g. £75 does the company then email everybody and ask for payment. Obviously the company importing the basket has to calculate carefully their profits before making such an offer at such a price and take into account that only a reduced percentage of those registered on the website e.g. 75% will actually keep their promise to buy at this price. The company then makes the profit by buying in bulk the imported food products, dividing them into baskets/hampers once everything has arrived in the UK and dispatching them to the waiting customers. Since the company already has the customer’s money before buying the products, the risk is that the potential long delay in delivery times must be clearly explained before they purchase – after all that is why they are getting specialised and exotic food products for very cheap prices. It would probably be best only to put into the baskets/hampers those products they will not perish quickly and include no products that might cause legal problems such as alcohol. The manufacturers of these selected products from foreign countries would probably be expected to handle and pay the cost of any health and safety issues relevant to exporting products into Europe. Inclusion of some of their products in these baskets/hampers would for them be a good way to cheaply “break into the European market” and the costs of European “health and safety” issues could be treated as their own R&D costs. Generally the www.letsbuyit.com website worked by showing colourful and informative price graphs. These illustrated how many potential buyers have registered at what price to buy specific products. Some people register as prepared to buy at a very high price, others at a very low. The graphs therefore also indicate at what price/quantity it would be an economic price point for the product to be fulfilled. Each person can therefore register whatever price they wish, but those being more realistic about the price are likely to be more interested in actually buying. Potentially it is a great system for hard-to-get foreign products such as strange foods in tins and jars. European health and safety legislation also works in favour of the idea, since it prevents individual eBay sellers making such products available on eBay without having first obtained such certification. The expense and investment risk of bulk purchasing any specific product needs only be made once the business model indicates there is a healthy profit margin on any one or range of products required to put together a hamper. Conclusion The “Letscomprar” project requires development of the www.letsbuyit.com technology model to provide an intelligent collective purchasing system for food imports. The diversity of food cultures in Latin America and the UK interest c29a6e53-c84f-4d8f-ab10039edf0e176a.doc Page 3 of 8 accessing such new culinary products (both from Spanish learners and UK resident Latin Americans) makes this a marketable service via low-cost internet methods. Research on LETSBUYIT.COM Research articles 1 to 7 Article 1 http://www.ciao.co.uk/letsbuyit_com__Review_5146609 Good idea pity about the service Advantages: Cheap, Good idea Disadvantages: Poor service, Unreliable Like many people I was introduced to this site a year ago when those adverts with the little ants were on TV. I thought the collective buy ethos was a neat idea so I checked out the web site, expecting there to be a big catch. But there wasn't. The site is well designed and well explained. It's simple to start an account and your account manager pages are easy to access, and give you all the info you need. The co-buys also look very attractive. I would say on average the saving is approximately 25% on normal retail price. Of course the catch is that the co-buy needs enough people to join it for the price to come down. But you can aid this by emailing your friends through the site. So I thought I'd take the plunge and bought a pair of panasonic speakers for £20. (Reduced from £30) They notified me when the co-buy was complete, debited my account and approximately a week later the speakers arrived. I have had nothing but pleasure from these speakers. They are versatile, have good sound quality and still work well today. If that had been my only experience of letsbuyit then I would have to give them full marks. Unfortunately it was not. In October 2000 I was looking to buy a MD player. I shopped around using kelkoo and others and found the one I wanted, a Sony MZ R70B. Going back to letsbuyit I saw this at just £145, down from £200. I made the co-buy and was debited with the correct amount. But then the problems started. 1) The player didn't arrive within a week, as the speakers had. I was beginning to get a bit worried and phoned the customer service line. They assured me it would be delivered, but didn't seem to have any way of tracing it. When buying online I feel it is a necessity to feel secure that the people you are dealing with no what you are doing. In a sense you are handing over your money and hoping that they will fulfil their side of the bargain. This makes the customer service side of such a company vital. Unfortunately letsbuyit fall down badly here. 2) The player arrived after about a month, with no explanation for the delay. The player itself was excellent and was constantly by my side for the next 6 months. Unfortunately, after 6 months it stopped working. Whether I had dropped it one too many times, or overused it I'm not sure. But it no longer worked, and I thought I would take advantage of the 12 month guarantee that all letsbuyit products come with. Having arranged the collection I boxed the item and it was collected promptly. Then I waited for payment, and waited, and waited. It's now October and still no cheque has landed on my doormat. Numerous Kafkaesque phone calls have led to nothing, no responsibility taken by individuals, just empty assurances and promises. c29a6e53-c84f-4d8f-ab10039edf0e176a.doc Page 4 of 8 So anyone from letsbuyit reading this pay attention. You have a great idea, but you have forgotten one of the basic requirement of any business, to make sure the customer is served well and that any queries are dealt with promptly. This is perhaps why they are in so much trouble now. Websites such as amazon have built up their reputation not just through their prices, but also through their service, with prompt delivery and collections. This is how trust between a company and its consumers happens. Take heed all shopping sites, word of mouth is the essence of the net. Article 2 READERS Comparing letsbuyit.com to ebay there is only one difference (which seems to be significant of course). Is this difference already responsible for the failing of letsbuyit.com? I really can't believe it. Look at the very successful business model of ebay: A product of any kind is offered by someone unknown to a big community. The one who pays most for the offered product will get it. Now look at the failed business model of letsbuyit.com: A community of any size wants to pay a product for a certain price (at least somehow less expensive than in a shop). It is looking for someone who sells that product for the requested price and the requested quantity. So the "only" difference I can see when analyzing both business models is: On the one hand side there is the product first, forming a buying-interested community around. On the other hand side there is a buying-interested community first, looking for its product(s). So, why did one model succeed and the other not? (Please don't tell me that it was because of human misdemeanour.) Article 3 http://news.bbc.co.uk/1/hi/business/1125527.stm Friday, 19 January, 2001, 15:08 GMT LetsBuyIt staggers on An Amsterdam court has given the cash-strapped online shop LetsBuyIt.com an extra five days to find the money to keep it afloat. The court ruled that LetsBuyIt must raise 4m euros of extra funding by Thursday 25 January or face enforced liquidation. But the lifeline comes on a gloomy day for dotcoms, with virtual store eToys closing its doors to European business and search engine Altavista slashing jobs. c29a6e53-c84f-4d8f-ab10039edf0e176a.doc Page 5 of 8 The management of LetsBuyIt decided to legally oppose its bankruptcy which was declared by court administrators on Wednesday, hoping that a last minute buyer would arrive. The company, which is run from London but had operated in 14 European countries, tried to attract customers by promising lower prices if more people decided to buy the same item. 320 staff across Europe stand to lose their jobs if LetsBuyIt fails to find the extra cash and is declared bankrupt. Some analysts argue that LetsBuyIt had a good business model, but it simply ran out of cash before it had the chance to prove itself. There seemed to be some hope for LetsBuyIt earlier this month when two possible suitors emerged. And shares in the online store doubled on Friday 12 January when two rival firms revealed they were considering takeover plans. But despite the high expectations, neither French-based Dealpartners.com nor Norway's CoShopper came forward with a firm bid. LetsBuyIt, while listed on Germany's tech-heavy Neuer Markt exchange, is managed in London and registered in Amsterdam. It was founded in Sweden in January 1999 by entrepreneurs including John Palmer, a former Mattel Toys executive who took control of the firm a week ago when the board resigned. LetsBuyIt has a market value of 7.53 million euros compared with 115 million euros just six months ago. Article 4 http://www.theregister.co.uk/2001/01/10/letsbuyit_com_teeters_over_debt/ Letsbuyit.com teeters over debt abyss Stares Titsup.com in the face By Drew Cullen Published Wednesday 10th January 2001 13:44 GMT Letsbuyit.com, the online buying club for e-bargain hunters, was suspended today on the Neuer Markt, after announcing it wanted a debt moratorium. Letsbuyit's holding company, based (for the usual tax reasons) in the Netherlands, issued a statement yesterday saying it wanted to defer repayment of debt, as allowed for in Dutch law, the FT reports. c29a6e53-c84f-4d8f-ab10039edf0e176a.doc Page 6 of 8 Letsbuyit has has a torrid time in 2000 - the company missed the IPO peak at the beginning of the year, and was forced to go to market in July at a much smaller market cap than previously anticipated (it raised E66 million, against the E130 million it wanted) to cover its burn rate. This meant that its credit rating was less attractive which meant that it could not get such favourable terms with manufacturerers, which meant that it was an even less attractive venue to buy from. This in turn meant staff and marketing cutbacks - but it's not been enough; in November the company revealed that it needed 80 million euros to see it through to expected breakeven sometime in 2002. But where will this money come from? Not from existing shareholders, surely. They've seen the value of their investments sink since IPO - so why would they put good money after bad? What about debt financing? Banks will lend money to loss-making businesses - but they want security (director's houses, plant, company property etc. and Letsbuyit won't have too much of that to mortgage). Or they want a loan repayment plan in which they can trust. Unfortunately for Letsbuyit, the mismatch between revenues and cash needs are far too great for any orthodox banker to stomach. Which leaves a trade sale - by far the most likely option, if Letsbuyit is to be saved. In November, the company announced its intention to seek a strategic alliance with an offline retailer - in effect it was putting up the for sale sign. But at what price? Letsbuyit's existing debt, continuing losses and possible warranty obligations could mean that the value of the company is already less than zero. It will be interesting to see what Letsbuyit's creditors have to say about the company's moratorium proposals. In the current uncertainty, Letsbuyit's credit rating will be falling through the floor (and hence creditor insurance premiums on Letsbuyit debt will be raised through the roof - if granted, at all). This will affect its ability to trade. The company is perilously close to a death spiral. ® Related stories and links FT: Letsbuyit suspended after statement on debts AFX: Letsbuyit.com am Neuen Markt 'bis auf weiteres' ausgesetzt - Deutsche Börse Letsbuyit wants £48m to help it into the black Letsbuyit boosts sales and slashes staff Letssellit.com. Oh dear, oh dear Letsbuyit.com pulls out of IPO (again) Article 5 Letsbuyit.com Letsbuyit.com, the online retailer, is to close its London office as part of a restructuring of its European operations that will lead to the loss of 60 jobs. Sep-2001 03- c29a6e53-c84f-4d8f-ab10039edf0e176a.doc Page 7 of 8 Letsbuyit.com is to close most of its European offices with the loss of 200 jobs in an attempt to secure the future of its online retailing business. 01-Feb-2001 Letsbuyit.com is considering plans to restructure its online retailing business and will stop taking orders from customers until further funding has been secured. 02Jan-2001 Letsbuyit.com is to shed 80 jobs by centralising functions such as purchasing and finance, having raised less money than expected in its recent flotation. 31-Aug-2000 Letsbuyit.com, the internet-based group that brings buyers together to obtain discounts on goods through bulk purchasing, is planning to raise up to £100m in a flotation next month. 19-May-2000 Article 6 http://networks.silicon.com/webwatch/0,39024667,11017832,00.htm Letsbuyit.com celebrates double award victory By Polly Raymond Published: Monday 5 June 2000 Letsbuyit.com scooped two cyber-oscars at the annual New Media Age Effectiveness awards. The consumer bulk buying company, which has had a tough few weeks braving speculation surrounding job and marketing cutbacks, and the cancellation of its IPO, won one award for excellence in retail and the overall winner award. Peter Jaco, UK & Ireland managing director for Letsbuyit.com, said the company's success sends a strong message to the new media industry. He said: "It proves there's validity in these business models. They're not all fly-by-night. There's a real solid business model case here." Dylan Schlosberg, founder of consumer Web site Ybag, which received a commendation in the category for best innovation, said Letsbuyit.com deserves the award for its application of the Internet in the retail sector. But he added that questions should be raised about the company's customer service track record. He said: "Letsbuyit.com's customer service over the Christmas period was poor and there is some research that suggests prices are not as low as it claims all of the factors here should have been considered in the award decision." Other award winners on the night, included: First Tuesday for the best use of communities Excite Mobile for the wireless/mobile category and Ace-quote.com for business-to-business services. c29a6e53-c84f-4d8f-ab10039edf0e176a.doc Page 8 of 8 Article 7 http://www.out-law.com/page-1367 Feb 2001 LetsBuyIt.com is rescued OUT-LAW News, LetsBuyIt.com, the on-line retailer, has managed to secure its future with € 52m (£33.1m) investment from existing shareholders and new investors although they do not include Kim Schmitz who helped the company recently avoid bankruptcy. LetsBuyIt.com, the on-line retailer, has managed to secure its future with € 52m (£33.1m) investment from existing shareholders and new investors. The identity of the new investors is not known; however it is thought that they do not include Kim Schmitz, the internet entrepreneur, who helped LetsBuyIt.com fight off bankruptcy last month. This new investment will help LetsBuyIt.com get back on track. In January, as well as its near bankruptcy, most of the board resigned including Martin Coles, the chief executive. The company is still suffering heavy losses. The new chief executive John Palmer, also the company’s founder, is now planning the relaunch of the company which will involve some restructuring. Last week, LetsBuyIt.com announced plans to sack 200 of its 350 staff and close most of its 12 European offices. The company believes that the new investment and the restructuring will help it to cover its losses and start making a profit in the fourth quarter of 2002. Having suspended trade, the company will re-open its web sites in the near future, although it is not known exactly when. See also LetsBuyIt.com saved from the brink of bankruptcy, OUT-LAW News, 25/01/2001 Final chance for LetsBuyIt.com, OUT-LAW News, 22/01/2001 LetsBuyIt.com files for bankruptcy, OUT-LAW News, 18/01/2001 END OF RESEARCH ARTICLES c29a6e53-c84f-4d8f-ab10039edf0e176a.doc